Reportedly, US is ‘alarmed’ by frequency of attacks on Saudi Arabia after a recent missile attack on a key Saudi Arabian export facility. On Monday, Brent crude oil price rose above $70 a barrel after Yemen’s Houthi forces fired drones and missiles at the heart of the Saudi oil industry, including a Saudi Aramco facility at Ras Tanura vital to petroleum exports.
The attack sent brent crude, the international benchmark, above $70 a barrel, first time since January 2021.
Additionally, oil prices rose on Tuesday on expectations of a recovery in the global economy after US Senate approved a $1.9-trillion stimulus package as United States is the world’s largest consumer of fuel .
US Treasury Secretary Janet Yellen said on Monday that US President Joe Biden’s $1.9-trillion coronavirus aid package will provide enough resources to fuel a “very strong” US economic recovery.
But it is to be noted that a stronger dollar ( rise in demand for dollar due to the recently approved stimulus bill) and receding fears of a supply disruption from Saudi Arabia, the world’s biggest oil exporter, after an attack on its export facilities capped price gains. The spike in oil prices has focused attention of experts on how the steady rise in energy costs will threaten the global recovery and will in turn give rise to inflation.
Stephen Innes, chief global markets strategist at Axi stated that “Fundamentals remain incredibly supportive, especially with Saudi Arabia in full control pursuing a tight oil policy,”.
Reportedly, Brent crude futures for May rose by 32 cents, or 0.5 per cent, to $68.56 a barrel by 0125 GMT, while US West Texas Intermediate (WTI) crude for April rose 19 cents, or 0.3 per cent, to $65.24.
Some credible sources stated that Brent is currently holding up above $68, suggesting that speculators are likely dipping their toes back in after oil price hike chaos.
The attack on the Saudi’s oil facilities , drew concerning response from US administration who stated that it would look at improving support for Saudi defenses.
The attacks came reportedly after the Organization of the Petroleum Exporting Countries, Russia and their oil producing allies, known as OPEC+, agreed last week in a meeting, to broadly stick with output cuts put in place during the pandemic, despite rising crude prices and request from nations around the world to be more accommodating.
While the prices have recovered after the oil price hike turmoil, the impact on inflation depends on how sustained the underlying rally proves to be. For economists the price rise does not pose a huge threat or concern but the reasons behind it constitute the main reason for worry.
If the price hike is due to increase in energy cost on the back of strong demand, it normally indicates strong, resilient growth, whereas if the surge comes from crippled supply, inflation could outweigh recovery.
Thus the hike in oil prices pose a big challenge for the policy makers as the high crude prices and inflation costs will be transferred from the producers to the consumers in the economy and will have a potential of unraveling economic recovery.